Generation Rent is Responsible

Hello. My name is Jessica. I'm in my early thirties and I don't own property.

Yes, I'm a member of the "Generation Rent" you keep hearing about; transient and intransigent in our refusal to buy property. We much prefer sleeping in on Saturdays to racing around town to inspect flea-bitten properties we can't afford.

Some people just don’t want a mortgage ore the responsibility of owning a home.

"What is wrong with them?" the baby boomers wonder. "Why won't they settle down, move into the suburbs and saddle up with a mortgage like we did?"

It's easy to understand the concern about Generation Rent. Home ownership has served the boomers well. For most, their homes have become their nest eggs, providing a significant source of wealth in retirement.

But times have changed.

First, the hurdle to home ownership is much higher today than it was when boomers were buying their first home. Household debt to income ratio exploded over the past few decades, sending home prices soaring relative to incomes. Fine if you're already on the ladder, but making it much harder to get on.

By necessity, Generation Rent must work longer to save the same deposit as their parents. It's even harder when interest rates are low as they are now.

So we should all stop being so hoity-toity and move further out to the outer urban fringes where housing is more affordable, right?

Sadly, suburban living is not the easy answer it once was.

When boomers and their parents migrated to the suburbs, jobs were for life and traffic was sparse. You could settle in one job, live nearby and drive to work.

Today, Generation Rent change jobs more frequently and those jobs are more likely to be located in the inner city. You think we're flighty. But we know there are financial benefits from finding a job that best suits your skills. We've also found out the hard way that loyalty to one company is not rewarded the way it once was.

Increased traffic congestion also makes living in the suburbs more costly in public transport fees and gas, not to mention dead time sitting in traffic.

Yes, it is cheaper to buy in outer suburban areas, but problems with urban congestion also mean outer areas are less likely to enjoy future house price gains.

For Generation Rent, it may well make financial sense to wait and save up a bigger deposit to buy in a more centrally located area.

But, I hear you worrying, if Generation Rent never buys property, how do they expect to save anything for retirement? Again, times have changed.

‘But rent money is dead money’ they say.

Yes, but so too is interest paid to a bank. Only a small amount of monthly mortgage repayments represent real saving - paying off the principal of the loan.

Instead of paying interest to a bank, some pay rent to a landlord and invest the remainder.

The real question, then, is whether you're better off investing your money building home equity through a mortgage or investing spare cash in other alternatives.

Like all investments, there are advantages and disadvantages to owning property that should be considered in the cold hard light of day and not under parental pressure to buy buy buy!

On the downside, housing is an illiquid investment that incurs substantial transaction costs in stamp duty. Houses also require money to be spent on maintenance and repairs.

On the upside, mortgages can be a good forced savings plan and - because banks are willing to lend more against property than shares - a great way to leverage into asset price growth.

In the meantime, there are benefits to renting, like not paying real estate taxes, having someone else pay for repairs, not paying interest to a bank and having the freedom and flexibility to live close to work.